The Zacks Mining - Non Ferrous industry comprises companies that produce non-ferrous metals, including copper, gold, silver, cobalt, molybdenum, zinc, aluminum and uranium. These metals are utilized by a wide array of industries that include aerospace, automotive, packaging, construction, industrial machinery, electronics, transportation, jewelry, chemical, and nuclear energy.
Let us take a look at the three major themes in the industry:
- The Mining - Non Ferrous industry is subject to fluctuations based on changes in global economic conditions and end-use markets. The coronavirus pandemic has impacted commodity prices this year with the only exception being gold, which gained on the back of its safe-haven demand. In fact, with the coronavirus pandemic showing no signs of dying down, mining companies are suspending production, slowing project construction or curbing their operations to critical activities as governments are imposing restrictions to contain the outbreak. These production cutbacks will lead to a supply crunch, which in turn will drive metal prices when demand picks up eventually. Stimulus measures from governments will also help lift the industry.
- Mining companies are major consumers of energy with around 50% of their production costs closely linked to energy prices. Thus, lower oil prices currently will drive margins. Meanwhile, the industry has been facing a shortage of skilled workforce that has led to a spike in wages. Moreover, labor-related disputes can be damaging to production and revenues. Since the industry cannot control the prices of its products, it focuses on improving sales volume, operating cash flow and lowering unit net cash costs. The industry participants are also opting for alternate energy sources in order to minimize fuel-price volatility and secure supply. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies.
- The industry players are currently dealing with depleting resources, declining supply in old mines and lack of new mines. Development projects are inherently risky and capital intensive. Demand for non-ferrous metals will remain high in the future given their wide usage in primary sectors including transportation, electricity, construction, telecommunication, energy, information technology and materials. Further, demand is on the rise courtesy of requirement from emerging markets, and economic activity in the United States and other industrialized countries. Hence, there will be an eventual deficit in metal supply that is likely to bolster metal prices, which bodes well for the industry in the long haul.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Mining - Non Ferrous Industry is a nine-stock group within the broader Zacks Basic Materials Sector. The industry currently carries a Zacks Industry Rank #27, which places it at the top 11% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions it appears that analysts are optimistic about this group’s earnings growth potential. The Mining – Non Ferrous industry’s 2020 earnings estimates have moved up 126% over the past three months.
Our proprietary Heat Map shows that the industry’s rank has remained in the top half over the past seven weeks.
Before we present a few Mining – Non Ferrous stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Mining- Non Ferrous Industry has outperformed the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively gained 14.9% in the past year compared with the S&P 500’s and its sector’s rally of 7.7% and 6.1%, respectively.
One-Year Price Performance
Mining- Non Ferrous Industry’s Valuation
On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Mining- Non Ferrous stocks, we see that the industry is currently trading at 7.93X compared with the S&P 500’s 13.21X. The Basic Materials sector’s forward 12-month EV/EBITDA is at 5.82X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Enterprise Value/EBITDA (EV/EBITDA) Ratio (F12M)
Over the last five years, the industry has traded as high as 8.88X and as low as 4.80X, with the median being at 6.22X.
While the coronavirus-induced crisis is far from being over, the long-term prospects for non-ferrous metals remain solid. Robust demand from end-use sectors like automotive, aerospace, construction and packaging, among others, bodes well for metals. Additionally, gold and silver have long been considered a hedge against financial or political uncertainty. Overall, the long-term fundamentals of metals remain positive, supported by their crucial role in the global economic development and a challenging supply environment.
We are presenting two stocks with a Zacks Rank #1 (Strong Buy) and three stocks with a Zacks Rank #2 (Buy) that investors can take a look at.
You can see the complete list of today's Zacks #1 Rank stocks here.
Freeport-McMoRan Inc. (FCX - Free Report) : This Phoenix, AZ-based company sports a Zacks Rank #1. The Zacks Consensus Estimate for fiscal 2020 currently indicates year-over-year growth of 750%. The estimate has gone up 467% over the past 30 days. The company has a trailing four-quarter earnings surprise of 81.8%, on average.
Southern Copper Corporation (SCCO - Free Report) : This Phoenix, AZ-based company has a Zacks Rank #1 and a long-term estimated earnings growth rate of 12.9%. The Zacks Consensus Estimate for fiscal 2020 earnings has moved up 10% over the past 30 days.
Coeur Mining, Inc. (CDE - Free Report) : The Zacks Consensus Estimate for this Chicago, IL-based company’s fiscal 2020 earnings indicates year-over-year growth of 180%. The estimates have moved up 43% over the past 30 days. The company carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 41.11%, on average.
Peninsula Energy Limited (PENMF - Free Report) : This West Perth, Australia-based company carries a Zacks Rank 2. The Zacks Consensus Estimate for fiscal 2020 earnings currently indicates year-over-year growth of 71.4%. The estimate has also undergone positive revision over the past 30 days.
Price : PENMF
Kaz Minerals PLC (KZMYY - Free Report) : Based in London, the U.K., this company carries a Zacks Rank #2. The Zacks Consensus Estimate for the current-year earnings has moved up 31% over the past 30 days.